What Legal Duties do Directors and Officers of Nonprofit Organizations Have?

Directors and officers of nonprofit organizations are often volunteers who receive no form of financial compensation. However, they still have a fiduciary duty to their organizations, and breaching that duty could result in them being personally liable for any damages they cause to the organization.

With this in mind, here are some of those legal duties owed by directors and officers to the nonprofit organizations they serve.

Acting in the best interest of the organization

This is the simplest duty these officers and directors have—they must always act in the best interest of the organization, and exercise reasonable care in performing all of their duties. The organization’s interests should be placed ahead of any other interests, including (and especially) their own.

Disclosing and avoiding potential conflicts of interest

It is extremely common for directors and officers of nonprofit organizations to have other interests outside of their organization. For example, a director might work for a commercial business that does some type of work with the nonprofit. In another example, a director could have an active role in another organization on the opposite side of certain policy members. These conflicts shouldn’t be a problem with regard to a director’s ability to serve on the nonprofit board, as long as those directors fully disclose those interests and are able to avoid potential conflicts.

The organization will still need to consider the possibility that a volunteer will be biased in certain types of decisions. It is the board’s right and responsibility to review these other interests and determine if there is a potential conflict and whether/how it can be mitigated.

Ability to be tight-lipped about organizational information

Directors of nonprofits have the duty to maintain the organization’s important information in confidence. This doesn’t only apply to information that has clearly been designated “confidential” by the organization, but also to any information the director would reasonably expect the organization would wish to keep confidential, even if it didn’t expressly designate that information as confidential.

Respecting various corporate opportunities

Directors have the duty to respect corporate opportunities as they arise. They are not allowed to appropriate any of these corporate opportunities, such as business prospects, ideas or investments related to the organization’s activities or programs. This tends to become a problem if corporate opportunities that arise for the nonprofit organization conflict with other interests held by the director outside of the organization.

This relates to the first duty discussed—that all directors must act in the best interest of the organization they serve. Standing in the way of corporate opportunities would certainly not constitute acting in the organization’s best interest.